Modes of Dissolution of a Firm under the Indian Partnership Act, 1932

The Indian Partnership Act, 1932 lays down, in Sections 40 to 44, the different ways in which a firm may come to be dissolved. Balbharati's Std XII textbook expects these to be known by name and with a brief explanation.

1. Dissolution by agreement (Section 40). A firm may be dissolved at any time with the consent of all the partners, or in accordance with a contract already made between the partners (for example, a clause in the partnership deed itself providing for dissolution on a specified event).

2. Compulsory dissolution (Section 41). A firm is compulsorily dissolved — regardless of what the partners want — in two situations: (a) by the adjudication of all the partners, or of all but one partner, as insolvent; or (b) by the happening of an event that makes it unlawful for the firm's business to be carried on, or for the partners to carry it on in partnership (for example, if the business trades with a country that later becomes an enemy country during a war).

3. Dissolution on the happening of certain contingencies (Section 42). Subject to any contract between the partners, a firm is dissolved: (a) if constituted for a fixed term, on the expiry of that term; (b) if constituted to carry out one or more specific ventures, on the completion of that venture; (c) by the death of a partner; or (d) by the adjudication of a partner as an insolvent.

4. Dissolution by notice of partnership at will (Section 43). Where the partnership is a 'partnership at will' (i.e., no fixed term or venture was agreed), any partner may dissolve the firm by giving notice in writing to all the other partners of their intention to dissolve. The firm stands dissolved from the date mentioned in the notice, or, if none is mentioned, from the date the notice is communicated. …